1. Chapter 16 LEGALITY AND POLICY

2. General Principles
Illegality embraces situations in which a statute declares that certain conduct is unlawful or a crime:
contracts requiring the commission of a tort.
contracts that are contrary to public policy.
contracts that are unconscionable.
to some extent, contracts that are oppressive, unfair, or made in bad faith.

3. General Principles Good Faith and Fairness. Unconscionable Clauses.
Every contract has an implied duty of good faith and fair dealing.
Unconscionable Clauses.
Contracts of adhesion.

4. Effect of Illegality
When an agreement is illegal, it is ordinarily void, and no contract arises from it.
Courts will not allow one party to an illegal agreement to bring suit against the other party.
There are some exceptions to this, such as when the parties are not equally guilty or when the law’s purpose in making the agreement illegal is to protect the person who is bringing suit.

5. Exceptions to Effect of Illegality
Protection of
One Party
Unequal
Guilt
Knowledge of Illegal Purpose of Other Party
Relief
Society,
speaking through
lawmakers or judges,
deems voiding illegal contract
unjust when the party meant to be
protected is harmed or harshly treated.

6. Agreements Affecting Public Welfare
The legality of an agreement is considered in light of the effect on the rest of society.
Whether a contract is contrary to public policy may be difficult to determine because public policy is not precisely defined.
That which is harmful to the public welfare or general good is contrary to public policy.

7. Agreements Affecting Public Welfare
Prejudice to Public Policy
Illegal Wagers and Lotteries
Evasions of Statutory Protection
Agreements
Negatively
Affecting
Society
Illegal Discrimination
Injuries to Public Service
Obstructions to Legal Process
Illegal Lobbying
Conflicts of Interests

8. Examples of Illegal Agreements
Agreements injuring public service, such as an agreement to buy a government job for an applicant.
Agreements involving conflicts of interest, such as when the purchasing officer of a government buys from a company that the officer privately owns.
Agreements obstructing legal process, such as an agreement with a witness to disappear.
Illegal discrimination contracts.
Wagers and private lotteries.

9. Regulation of Business
Contracts with Unlicensed Persons in Licensed Callings or Dealings
Agreements
Impacting
Business
Fraudulent Sales
Usurious Agreements
Agreements Restraining Trade
Obstructions to Legal Process
Agreements Not to Compete
Conflicts of Interests

10. Agreements Not to Compete
Contracts in restraint of trade are generally illegal as violating federal or state antitrust laws.
Non-compete Agreements are illegal unless the terms are reasonable and it is incidental to the sale of a business or to a contract of employment.
Sale of Business.
Employment Contract.
Effect of Invalidity.

11. Usurious Agreements
The charging by a lender of a higher rate of interest than allowed by law is usury.
Courts must examine transactions carefully to see if there is a usurious loan disguised as a legitimate transaction.
When sellers of goods offer their buyers one price for a cash sale and another, higher price for a credit sale, the higher price is lawful in most cases.